Tag Archives: Fannie Mae

A Palace For Fannie (Mae)—–Why The Imperial City Must Be Sacked, by David Stockman

Posted on June 19, 2016 | Leave a comment

Sometimes the best thing that can happen to an Imperial City is for it to be sacked and burned. Washington D.C. certainly qualifies. From David Stockman at davidstockmanscontracorner.com:

To hear the establishment media tell it, you would think that Attila the Hun was fixing to sack the Imperial City. Would that Donald Trump were that bold or dangerous.

Then again, he is a showman of no mean talents. So if there is a maquette of Fannie Mae’s planned new $770 million headquarters somewhere around Washington DC, he could start the sacking right there. Hopefully, he would not hesitate to shatter it with a fusillade of tweets—-or even take a jackhammer to it while wearing a Trump hard hat.

Fannie Mae is surely a monument to crony capitalist corruption, and living proof that massive state intervention in credit markets is a recipe for disaster. But rather than shut it down after it helped bring the nation’s financial system to the edge of ruin, the beltway pols have come up with an altogether different idea.

To wit, they plan to move Fannie from her already luxurious NW Washington headquarters to this hideous new glass palace to be built in the heart of Washington DC. Could there be a bigger insult to the 15 million families who lost their homes to foreclosure owing to the crash of the giant housing bubble that Fannie Mae and the crony capitalist crooks who ran it helped perpetuate?

And that’s to say nothing of the $180 billion of taxpayer money that was pumped into Fannie Mae and the other GSE’s after the house of cards came tumbling down in August 2008. In fact, while the politicians on Capitol Hill have dawdled for eight years without any statutory changes or mandates for even minor reforms, Fannie Mae’s management and its phalanx of K-Street lobbies showed exactly who rules in the Imperial City.

It is the larcenous rule of these syndicates of beltway racketeers, in fact, that has put Donald Trump’s name on the Presidential ballot.

So let it be granted that his manners and policy knowledge appear to be on the meager side. Yet it is malodorous tales like that of Fannie Mae’s swank new palace which demonstrate why a disrupter on horseback is exactly what the Imperial City deserves.

In truth, the government housing guarantee programs at Fannie Mae and Freddie Mac have been an abomination from the very beginning.

Not only did they inappropriately subsidize home mortgages by upwards of $60 billion annually—–most of which went to affluent middle class households not entitled to taxpayer help in the first place—-but they were also based on the kind of Washington artifice upon which today’s rampant crony capitalism thrives. Namely, the specious claim that the GSEs are unique, creative “public-private partnerships” that enable a “secondary market” for home mortgages, and thereby remedy the alleged failure of the free market to provide cheap 30-year housing loans to the public.

In fact, the so-called secondary market for mortgages was no such thing. Freddie and Fannie have always been a de facto branch office of the US Treasury and their securities have been just another variant of treasury bonds. That finally became official when the U.S. Treasury threw them a $180 billion lifeline on the eve of the financial crisis.

To continue reading: A Palace For Fannie (Mae)—–Why The Imperial City Must Be Sacked

Leave a comment

Posted in Cronyism, Government

Tagged ,

U.S. Government Is Now a Major Counterparty to Wall Street Derivatives, by Pam Martens and Russ Martens

Posted on April 24, 2016 | Leave a comment

Don’t worry about trying to figure out derivatives exposure among banks, housing agencies, and the government. Like Obamacare, the legislation that had to be passed before we found out what was in it, we’ll find out where the bodies are buried in the derivatives market when they blow up. From Pam Martens and Russ Martens at wallstreetonparade.com:

According to a study released by the Federal Reserve Bank of New York in March of last year, U.S. taxpayers have already injected $187.5 billion into Fannie Mae and Freddie Mac, two companies that prior to the 2008 financial crash traded on the New York Stock Exchange, had shareholders and their own Board of Directors while also receiving an implicit taxpayer guarantee on their debt. The U.S. government put the pair into conservatorship on September 6, 2008. The public has been led to believe that the $187.5 billion bailout of the pair was the full extent of the taxpayers’ tab. But in an astonishing acknowledgement on February 25 of this year, the Government Accountability Office, the nonpartisan investigative arm of Congress, issued an audit report of the U.S. government’s finances, revealing that the government’s “remaining contractual commitment to the GSEs, if needed, is $258.1 billion.”

This suggests that somehow, without the American public’s awareness, the U.S. government is on the hook to two failed companies for $445.6 billion dollars. And that may be just the tip of the iceberg of this story.

The official narrative around the bailout of Fannie and Freddie is that they were loaded up with toxic subprime debt piled high by the Wall Street banks that sold them dodgy mortgages. While that is factually true, the other potentially more important part of this story is the counterparty exposure the Wall Street banks had to Fannie and Freddie’s derivatives if the firms had been allowed to fail.

The New York Fed’s staff report of March 2015 concedes the following:

“Fannie Mae and Freddie Mac held large positions in interest rate derivatives for hedging. A disorderly failure of these firms would have caused serious disruptions for their derivative counterparties.”

Exactly how big was this derivatives exposure and which Wall Street banks were being protected by the government takeover of these public-private partnerships that had spiraled out of control into gambling casinos?

To continue reading: U.S. Government Is Now a Major Counterparty to Wall Street Derivatives

Leave a comment

Posted in Financial markets, Government

Tagged , ,

SEC Reaches “Appropriate” Settlement With Freddie Mac Execs Who Will Pay Nothing And Receive No Punishment, from Zero Hedge

Posted on April 16, 2015 | Leave a comment

This story is  basically an entire MBA in how business and government, and especially how government businesses, operate in the 21st century. From zerohedge.com:

Last month, we discussed a government report which showed that, much to the chagrin of a few billionaires and a long line of retail investors who bought the proverbial dip, Fannie Mae and Freddie Mac may be destined, by design, by decades of reckless behavior, and by Treasury decree, to be insolvent most of the time. Today, we learned that when it comes to accountability for the executives who helped put the companies in a position whereby receivership became necessary in mid-2008, we can forget about it.

In what was billed as a “high profile” case, the SEC had sought financial and other penalties against three former Freddie Mac executives who allegedly “misled” investors in 2006 by understating the amount of subprime exposure the GSE had on its books while it was simultaneously still sucking up and packaging bad loans. If the SEC allegations are indeed accurate, it’s probably safe to say that using the term “understated” to describe the executives’ misrepresentations is, well, an understatement, because it appears they may have lowballed the figure by a factor of 28. Here’s AP:

According to the SEC, Fannie and Freddie misrepresented their exposure to mortgages for borrowers with weak credit in reports, speeches and congressional testimony.

The SEC said Freddie told investors in late 2006 that it held between $2 billion and $6 billion of subprime mortgages on its books — but its actual subprime holdings were actually closer to $141 billion, or 10 percent of its portfolio in 2006, and $244 billion, or 14 percent, by 2008.
But all’s well that ends in a catastrophic housing market meltdown apparently because as WSJ notes, everyone seems to have gotten a pretty good deal considering their actions may have contributed mightily to the worst financial crisis since The Great Depression:

The civil case, filed in 2011, had alleged that three Freddie executives, including former Chief Executive Officer Richard Syron, knowingly misled investors about the volume of risky mortgages the company purchased as the housing boom came to an end. The SEC had sought financial penalties against the executives and an order barring them from serving as officers and directors at other companies.

Instead, the executives agreed for a limited time not to sign certain reports required by chief executives or finance chiefs and to pay a total of $310,000 to a fund meant to compensate defrauded investors.
The breakdown of the fees is as follows: Richard Syron, $250,000; Donald Bisenius, $50,000; Patricia Cook, $10,000. As you can see, Ms. Cook got off pretty easy, but then again, they all did because they don’t actually have to pay the fines:

Those amounts will be paid by insurance from Freddie Mac that covered the executives.
And no one had to admit to anything of course:

The pact said both sides agreed to the settlement “without conceding the strengths and weaknesses of their respective claims and defenses.”

http://www.zerohedge.com/news/2015-04-15/sec-reaches-appropriate-settlement-freddie-mac-execs-who-will-pay-nothing-and-receiv

To continue reading: SEC Reaches “Appropriate Settlement”

Leave a comment

Posted in Business, Government, Other Views

Tagged , ,